Will Any Q Do? Firm Characteristics and Divergences in Estimates of Tobin's Q

29 Pages Posted: 4 Jun 2002

See all articles by Peter J. DaDalt

Peter J. DaDalt

Susquehanna University

Jacqueline L. Garner

Georgia Institute of Technology - Scheller College of Business

Jeffrey Donaldson

The University of Tampa - John H. Sykes College of Business

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Date Written: June 7, 2002

Abstract

We find that the relative levels of the computationally costly q-estimator developed by Perfect and Wiles (1994) and the simple one of Chung and Pruitt (1994), when used as continuous variables, are affected by variations in several firm financial characteristics. In contrast, when the estimators are used as dichotomous variables, they classify the vast majority of firms identically with respect to the unit q breakpoint. Finally, we find that the computationally costly approach may induce sample selection bias as a result of data unavailability. Our results suggest that the simple approach is preferable except in cases when extreme precision of the q estimate is paramount and sample selection bias is not likely to be an issue.

Keywords: Tobin's q

JEL Classification: G10, G19, G39

Suggested Citation

DaDalt, Peter J. and Garner, Jacqueline L. and Donaldson, Jeffrey, Will Any Q Do? Firm Characteristics and Divergences in Estimates of Tobin's Q (June 7, 2002). Available at SSRN: https://ssrn.com/abstract=312182 or http://dx.doi.org/10.2139/ssrn.312182

Peter J. DaDalt (Contact Author)

Susquehanna University ( email )

Selinsgrove, PA 17870
United States
5703724524 (Phone)

Jacqueline L. Garner

Georgia Institute of Technology - Scheller College of Business ( email )

800 West Peachtree St.
Atlanta, GA 30308
United States

Jeffrey Donaldson

The University of Tampa - John H. Sykes College of Business ( email )

401 W. Kennedy Blvd.
Box 158F
Tampa, FL 33606-1490
United States
813-253-3333, ext. 3282 (Phone)

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